QSEHRA: Lessons for Australian SMEs on Health Reimbursement

Small and medium-sized enterprises (SMEs) in Australia have long grappled with how to offer competitive employee benefits without breaking the bank. As healthcare costs continue to rise, the challenge of providing meaningful support becomes even more acute. Across the Pacific, a US innovation called the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is helping small businesses provide tax-free health benefits to staff—without the administrative weight of traditional group health insurance. While QSEHRA itself isn’t available in Australia, its core principles could spark fresh thinking about how we support employees’ health and financial wellbeing.

What Is QSEHRA? A Snapshot from the US

Introduced by the US Congress in 2017, QSEHRA is a formal arrangement allowing small businesses (with fewer than 50 full-time employees) to reimburse staff for medical expenses and health insurance premiums, up to government-set annual limits. These reimbursements are tax-free for both employers and employees, provided certain conditions are met. The structure is simple: businesses set a monthly allowance, employees purchase their own health cover or pay eligible medical bills, and then submit receipts for reimbursement.

• Tax-advantaged: Contributions are generally free from income and payroll tax.
• Flexible: Employees choose coverage that fits their needs—no one-size-fits-all group policy.
• Cost control: Employers set a budget they can afford, with no unexpected rate hikes.

In 2025, US QSEHRA annual limits are USD $6,150 for individuals and $12,450 for families, indexed to inflation. These limits are published annually by the IRS and help small businesses keep benefits competitive without overspending.

Could QSEHRA Work in Australia?

Australia’s healthcare landscape is unique. We have Medicare, a robust public health safety net, and a mix of public and private health insurance options. But many SMEs still want to offer perks that go beyond the basics, especially as staff retention and wellbeing become central to business strategy. The QSEHRA model offers several lessons:

• Personalised Choice: Australian workers could benefit from employer-funded allowances for private health insurance, dental, or allied health services, giving them freedom to select what matters most.
• Simplicity and Flexibility: Instead of negotiating complex group insurance, SMEs could set clear annual health budgets per employee, streamlining administration and costs.
• Tax Efficiency: While the Australian Taxation Office (ATO) currently treats most direct health benefits as fringe benefits (and thus taxable), a QSEHRA-like system could prompt policy debate about more tax-efficient arrangements for SMEs.

Recent 2025 policy discussions in Canberra have focused on boosting SME competitiveness and wellbeing. While there’s no direct QSEHRA equivalent yet, the appetite for innovation is strong, with some industry groups calling for tax incentives for SME health initiatives and wellbeing programs.

Real-World Examples and Lessons for Australian SMEs

Let’s look at how a QSEHRA-style approach might translate in an Australian setting:

• Case Study 1: The Tech Startup
  A Melbourne-based IT firm with 20 staff faces the challenge of attracting software developers who expect tailored benefits. Instead of a single private health plan, the business offers a $2,000 annual health allowance per employee. Staff can use it for gym memberships, mental health services, or to top up their private health cover—improving satisfaction and retention.
• Case Study 2: The Regional Retailer
  A family-owned retailer in Dubbo wants to support workers’ wellbeing but can’t afford group health insurance. By reimbursing eligible out-of-pocket medical expenses (within a set cap), the business provides meaningful support while controlling costs.

Some Australian SMEs are already experimenting with similar models, often delivered as part of a broader salary packaging or wellness allowance. However, tax treatment remains a hurdle: unless policy shifts, these benefits can attract fringe benefits tax (FBT), reducing their cost-effectiveness.

What’s Next? Policy Watch and Practical Steps

With the 2025 Federal Budget including new incentives for small business wellbeing programs—such as deductions for mental health spending and streamlined reporting for employee wellness allowances—the climate may be ripe for further innovation. Industry associations are lobbying for clearer, more favourable tax treatment of health-related employee benefits, and the government is reviewing submissions on how to modernise SME workplace support.

If you run an Australian SME and want to get ahead of the curve:

• Review your current health and wellness offerings: Are they valued by staff? Are they tax-efficient?
• Keep an eye on policy updates around employee benefit taxation in 2025.
• Consult your accountant about ways to structure allowances or reimbursements for maximum impact.